She can refuse, you can s21. Although with a T that has been there for that long the latter would be like shooting yourself in the foot - plus any damage they might do is dwarfed by the reasonable wear and tear over that period which diminishes the importance of a deposit in that respect - but does give you a cushion in respect to if they have payment issues.

Offer to take it installments ( but don't fall foul of deposit protection legislation ) - or they don't want to pay a deposit just put the rent up a bit more?

Tenant been in situ for twelve years and paid rent on time. You could easily offend the tenant by asking for a deposit and they may have problems raising the money. I would say leave as is, the amount of security the deposit would give you is significantly less than a reference from the existing landlord.